Factcheck: Obama overpromises on premiums

President Obama claimed that all of the currently uninsured would be able to get coverage on the exchanges "at a significantly cheaper rate than what they can get right now on the individual market" even without federal tax credits. But even Health and Human Services Secretary Kathleen Sebelius has said that younger Americans would likely pay more on the exchanges, while those who are older would likely pay less.

We've criticized conservatives for making sweeping claims about higher premiums under the health care law, and Obama's blanket statement claiming lower premiums falls in the same category of political exaggeration.

Obama made the broad statement at a White House press conference on Aug. 9. He was asked about an important date in the implementation of the Affordable Care Act: Oct. 1, when the exchanges will begin accepting applications for insurance plans.

Obama, Aug. 9: Now, what happens on October 1st, in 53 days, is for the remaining 15 percent of the population that doesn't have health insurance, they're going to be able to go on a website or call up a call center and sign up for affordable quality health insurance at a significantly cheaper rate than what they can get right now on the individual market. And if even with lower premiums they still can't afford it, we're going to be able to provide them with a tax credit to help them buy it.

Experts have long estimated some shifting of premium costs as the individual market morphs into the more tightly regulated exchanges. The health care law requires a minimum standard of benefits, making some plans more generous in general and, therefore, more expensive. Those with medical conditions may find more affordable plans, since insurers will have to accept all customers and won't be able to charge more based on health status. Older Americans, too, may get a rate break, since the law requires insurance companies to charge its oldest customer no more than three times what it charges its youngest customer for the same coverage. But the young and healthy won't benefit from those requirements.

Economist Jonathan Gruber of the Massachusetts Institute of Technology told us, "The president is right for the average uninsured person, but not for all uninsured people."

The CBO estimates that there will be 25 million fewer uninsured in 2023 because of the law, with 31 million still being uninsured. Most of them will gain coverage through Medicaid and the exchanges.

According to the most recent figures, 16 percent of Americans are uninsured, according to the Kaiser Family Foundation. That's 48.6 million people. The KFF found in a separate analysis of Census Bureau data that more than half — 51.2 percent — of the uninsured earned up to 138 percent of the federal poverty level, which is the threshold for the Medicaid expansion under the Affordable Care Act (see Table 10). Not all states will adopt the Medicaid expansion — as of July 1, 21 states were not moving forward with the expansion — but that's still a healthy chunk of the uninsured who would qualify.

For the uninsured who get coverage through the exchanges, some likely will see premiums that are lower than what they had been offered, or could have been offered, on the individual market before the law. Some have health conditions that may have precluded them from getting health insurance altogether — or they've been quoted sky-high premiums they either couldn't afford or didn't want to pay. The KFF report said 11 percent of the uninsured reported they had "fair/poor" health status in 2011. They may well benefit from the law, which requires insurance companies to take all customers, regardless of preexisting conditions, and prohibits companies from charging more based on health status.

The law also limits how much insurers can vary premiums based on age to a 3-to-1 ratio. In other words, older folks can't be charged more than three times the rate for younger policyholders. Insurers can vary premiums based on geography, family size and tobacco use (but only by a 1.5-to-1 ratio), and they can't charge women more than men.

What could be good news for those with a medical issue isn't so great for healthy folks. Most of the uninsured — 60 percent — have "excellent/very good" health, according to the KFF report. The Affordable Care Act not only levels the playing field for the healthy and the less so, but it also requires a minimum set of benefits, making plans more generous but probably more expensive.

HHS Secretary Sebelius said as much in March, telling reporters that she expected "shifting" in the individual insurance market.

"Women are going to see some lower costs, some men are going to see some higher costs," Sebelius was quoted by Reuters as saying. "Some of the older customers may see a slight decline, and some of the younger ones are going to see a slight increase."

The boost in benefits on the individual market has long been expected to increase costs. Even before the law was passed, the nonpartisan Congressional Budget Office estimated that increased benefits would be the reason individual market premiums would go up by 10 percent to 13 percent net, before accounting for federal subsidies. Part of the increase, the CBO said, would be due to those receiving subsidies buying more expensive insurance than they normally would.

Sebelius told reporters in March: "These folks will be moving into a really fully insured product for the first time, so there may be a higher cost associated with getting into that market."

More generous benefits could mean lower total out-of-pocket costs. But again, some, who use the expanded benefits, would save money and others wouldn't.

Princeton economist Uwe E. Reinhardt explained the trade-off in moving from a medically underwritten system to community rating, which limits premium variation for health status and age, in a July New York Times column. While some may experience what's been termed "premium shock," he said, others will experience what Reinhardt called "premium joy."

Reinhardt wrote: "Younger and healthier members of the pool should realize that, in effect, they are buying a call option that allows them to buy coverage at a premium far below the high actuarial cost of covering them when they are sicker. The price charged the healthy for this call option is the difference between the premium they must pay and the current lower actuarial cost of covering them."

And then there's the "premium joy" for those with health conditions. Writes Reinhardt: "Many such people simply could not afford the high, medically underwritten premiums they were quoted in the traditional nongroup market."

Gruber, at M.I.T., estimates it would be a "small share" of the uninsured who would see higher premiums than what they could get today.

"Some uninsured will see higher prices than they would pay today," Gruber wrote in an email to FactCheck.org. "If you look among those who are currently getting insurance in the individual market, I estimate that about 1/3 will see a higher price, after accounting for tax credits. But these guys are much healthier and richer than the uninsured. So for the uninsured the number will be well below 1/3. So I would say that the vast majority of uninsured will see lower costs than if they bought today, but not 100%." (Gruber was a paid consultant to both the Obama administration and Gov. Mitt Romney's administration in Massachusetts on health care overhaul plans.)

It's true that most buying exchange plans will receive subsidies to do so — about 80 percent of the 24 million on exchange plans in 2023, according to the CBO, and that brings down their overall costs. Only 10 percent of the uninsured earned more than 400 percent of the federal poverty level, the cutoff for exchange subsidies, according to the Kaiser Family Foundation report. But Obama said the uninsured would get the "significantly cheaper rate" even before factoring in subsidies.

It's difficult to make comparisons between what Americans would have paid before and what they'll pay on the exchanges. Not only will factors such as health status, age and gender determine how a person's premium offerings may change, but current state regulations also play a role. When Obama recently touted premium estimates out of New York state that were lower than those offered now on the individual market, we noted that New York's insurance regulations — such as prohibiting rate variation based on health status or age — already had helped make it one of the most expensive markets in the country. So the impact of the law in New York will be different from that in most other states.

For all of these reasons, Obama overpromised when he said that all of the uninsured would find cheaper premiums on the still-evolving exchanges.

Obama also made a gross overstatement when he said that "for the 85 percent of Americans who already have health insurance, they are benefiting from being able to keep their kid on their plan if their kid is 26 or younger." That 85 percent figure is the total percentage of insured Americans. As this table from the Kaiser Family Foundation shows, it includes the 30 percent of Americans who are on Medicaid, Medicare or other public insurance. Those folks can't add kids up to age 26 to their insurance.

Obama is talking about the 54 percent of Americans who have employer or individual insurance. Those private plans were required to expand dependent coverage to adult children up to age 26, if they hadn't already done so. Obama is correct to say it's a benefit — the KFF says 3 million gained insurance because of this provision — but it doesn't affect "85 percent of Americans."

Factcheck.org is a nonpartisan, nonprofit "consumer advocate" for voters that aims to reduce the level of deception and confusion in U.S. politics. Based in Philadelphia, Factcheck monitors the factual accuracy of what is said by major U.S. political players in the form of TV ads, debates, speeches, interviews and news releases. Its goal is to apply the best practices of both journalism and scholarship, and to increase public knowledge and understanding. Find a list of Factcheck.org funders here.